Today, Vringo got the payout it was looking for: a 1.36 percent running royalty on US-based revenue from AdWords, Google's flagship program. US District Judge Raymond Jackson had already ruled last week (PDF) that the AdWords program, which was tweaked by Google after the Vringo verdict, wasn't "colorably different" from the old infringing program. He gave Google and Vringo one last session to hammer out a royalty rate, and when they couldn't, he went ahead and set it (PDF)—at almost exactly the rate Vringo was seeking.

Because some aspects of Google's revenue are opaque, it's impossible to know exactly what Vringo's win would be worth—and the company is a long way from cashing a check. But if the royalty rate were to be upheld on appeal, Google would surely have to pay hundreds of millions of dollars.

Whatever its worth, the victory will lift the hopes of patent-holding companies around the nation. A 2006 Supreme Court decision makes it almost impossible for so-called "patent trolls" to get an injunction that would knock a product out of commission; in the context of 2014 case law, a solid running royalty is a troll's dream come true.

Jackson followed the methodology laid out in an East Texas case in which Yahoo was found to infringe an online advertising patent owned by famed patent troll Acacia. The math is a little confusing. Today's order sets a royalty rate at 6.5 percent, on a "royalty base" of 20.9 percent, for an overall rate of 1.3585 percent. The royalty base is supposed to calculate what the Vringo-owned patents add to Google's search system.

"My reaction is pretty darn positive," said Jeffrey Sherwood, the lead lawyer on Vringo's trial team. In Vringo's view, the patents describe Google's ad-filtering system, which ranks various possible advertisements against each other in an auction. "They have a huge inventory of ads, and they have to get it down to the few that are the most relevant to their users. These patents describe a way to do it. And our position is, that's the way Google does it."

Jennifer Polse, Google's lead patent lawyer on the Vringo case, said that the company has already appealed the jury verdict and will appeal today's royalty award as well. "We believe strongly in our pending appeal in this matter, and we anticipate seeking Federal Circuit review of today's decision as well," said Polse in an e-mailed statement.

AOL, Gannett, Target, and IAC were named as co-defendants in the lawsuit for their use of AdWords. However, they've been indemnified in this case by Google, which is handling the litigation. Vringo brought the case under the name I/P Engine, a subsidiary it created to hold the two patents it purchased, numbered 6,314,420 and 6,775,664.

Vringo also sued Microsoft over ads in its Bing search engine. Microsoft settled that case in May, agreeing to pay $1 million plus 5 percent of whatever Google ultimately pays.

While publicly traded Vringo also has a "video ringtone" business, its financial statements describe its business as now being focused on patent assertion. The company has 28 full-time employees, has generated "no significant revenue to date," and had more than $10 million in legal expenses in 2012.

Redesigned system wasn't different enough

In today's order, Jackson awarded Vringo almost exactly the royalty it wanted. The company's expert argued for a royalty of 5 percent, and Jackson chose to award 4.6 percent. Vringo wanted a 40 percent increase on the rate because Google was found to be a willful infringer, and Jackson agreed that was reasonable. Knocking up 4.6 by 40 percent comes out to 6.44 percent, which the judge rounded up to 6.5.

That's significantly more than the 3.5 percent royalty that the jury suggested, which was "only a starting point in the analysis," wrote Jackson in today's order.

Even though there was no evidence of copying—Vringo admitted as much—a willfulness adjustment was still appropriate, the judge found. "Defendants' misconduct continues presently and Defendants have taken no remedial action," wrote Jackson. "In fact, they have redesigned a system that clearly replicates the infringing elements of old AdWords."

In last week's order, Jackson said that Vringo had proven infringement of both the old and new AdWords systems. While he didn't go into the details of changes Google made, he did write that all Google had done was apply the "LTV" or "long-term value" score at a different point in the ad-selecting process. It was basically the same: "[I]t is undisputed that new AdWords continues to use a candidate advertisement's LTV score that includes a predicted click-through rate in the process of choosing which advertisement will ultimately be shown to the individual performing the query."

Back-of-napkin math on the Vringo win

Google doesn't break out AdWords revenue clearly, but the company made $9.39 billion from "Google-owned sites" in the last quarter. The company will likely make more than $35 billion in 2013 in this area. The majority of that is surely AdWords, since estimates for YouTube range from $3.7 billion to $5.6 billion. Around 55 percent of the company's overall revenue comes from the US.

Accepting those estimates, an extremely rough calculation suggests US AdWords revenue is somewhere in the range of $15 billion to $18 billion annually. If that's right, it would place the Vringo royalty win somewhere in the realm of $200 million to $250 million annually. The patents expire in 2016, and Google is liable from November 2012, which is the date final judgment was entered after the trial.

And of course, if Google loses, it will owe interest on the whole shebang.

It's all pretty academic at this point; the numbers are clearly high enough that Google is likely to fight this tooth-and-nail through the appeal process, and the parties have agreed to stay earlier judgments until the appeal is resolved.

Still, a royalty award that could potentially push the billion-dollar mark—on old search technology that not even Vringo believes Google actually copied—could become additional fodder in the ongoing patent debates in Congress.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

142 Reader Comments

I was wondering whether it wouldn't be possible for many companies simply not to make any business with East Texas whatsoever? Couldn't they just prohibit sales to persons and companies in East Texas, show pop-ups that people from East Texas have to leave their web pages, etc.? Wouln't that make it impossible to get sued there?

I don't think the sales loss would be very big for an international company.

I was wondering whether it wouldn't be possible for many companies simply not to make any business with East Texas whatsoever? Couldn't they just prohibit sales to persons and companies in East Texas, show pop-ups that people from East Texas have to leave their web pages, etc.? Wouln't that make it impossible to get sued there?

I don't think the sales loss would be very big for an international company.

Its not a Texan court. It is a federal court located in east Texas. Don't blame the cowboys :-)

So... if Microsoft have agreed to pay 5% of what Google end up paying... does that mean that they're liable for 5% of the running royalty, indefinitely? That means that the better their competitor does in the advertising market, they more they'll also have to pay? Seems a bit unfair...

You're talking about the company that paid millions to SCO to fund its legal battles against competitors. In my opinion, a million dollars and 5% of the cost their rival pays is a pittance and a notable win for Microsoft. It's in their interest for Google to lose this case with maximum damages.

I have to say, smooth move by Microsoft here. Pay essentially a pittance of a million bucks, make Google fight the fight and if Google wins, pay nothing more. If Google looses, pay 1/20th the damage that Google does, all while avoiding any legal fees. Pretty much a win-win for MSFT - cutting losses without feeding the troll unnecessarily.

True, got to hand to MS for cutting a sweet deal. It would have cost more than the million just to get lawyers into a courtroom.

On a more concerning note: it really seems like the tone of discussions on patents has become extremely hostile to inventors. Especially smaller inventors, who are really a key piece of the American legacy.

Suggestions that you shouldn't be able to hold a patent unless you are actively producing it? With the cost of entry to many tech markets being astronomical this would essentially mean that all progress in those fields would hinge on the few existing megacorps.

For instance, semiconductor design - if a grad student works out a way to reduce transistor leakage on sub 10nm scales by 80% it would be a huge advance for the industry - however the cost of building a fab is on the order of $5B, so while they may be able to use university equipment to produce a few prototypes to prove it works, there is no reasonable way to bring it to production. This would leave this innovative person no recourse when Intel, GloFo, and TSMC start using his ideas to boost their profits. Is this really the world people want?

True. As some sort of alternative, how about: you can buy or sell patents, but the right to sue only extends to infringements occurring after the sale.

If it was infringed before you sold it, tough... you either left it too long or it was never valuable in the first place. In fact, infringement prior to sale should count as evidence of prior art (as protection for startups). At the same time, infringment after is fair game.

For instance, semiconductor design - if a grad student works out a way to reduce transistor leakage on sub 10nm scales by 80% it would be a huge advance for the industry - however the cost of building a fab is on the order of $5B, so while they may be able to use university equipment to produce a few prototypes to prove it works, there is no reasonable way to bring it to production. This would leave this innovative person no recourse when Intel, GloFo, and TSMC start using his ideas to boost their profits. Is this really the world people want?

And now it'd be really great of you to name one example of this happening and the grad student making millions thanks to patents which would otherwise never have worked.

Because what usually happens is that grad student has good idea, founds company and then gets dozens of law suits for "violating" some patent - doesn't matter if it's applicable or not it's still going to ruin the company (much harder to get VC and you'll have to spend quite a bit of that to defend yourself). Not that bad at least the big established companies can then cheaply buy the firm.

For instance, semiconductor design - if a grad student works out a way to reduce transistor leakage on sub 10nm scales by 80% it would be a huge advance for the industry - however the cost of building a fab is on the order of $5B, so while they may be able to use university equipment to produce a few prototypes to prove it works, there is no reasonable way to bring it to production. This would leave this innovative person no recourse when Intel, GloFo, and TSMC start using his ideas to boost their profits. Is this really the world people want?

And now it'd be really great of you to name one example of this happening and the grad student making millions thanks to patents which would otherwise never have worked.

Because what usually happens is that grad student has good idea, founds company and then gets dozens of law suits for "violating" some patent - doesn't matter if it's applicable or not it's still going to ruin the company (much harder to get VC and you'll have to spend quite a bit of that to defend yourself). Not that bad at least the big established companies can then cheaply buy the firm.

Other valuable VRINGO patents:Fan loyalty: integrated polling during live performanceRemix: video remixes... ON A SMARTPHONE OR TABLET, WOO

In general, patents CAN advance science and tech; I agree with that statement BUT it's not being used for that. Actually, ever so far - even far back as Bell, using patents to steal rather than protect an invention.

I'm of the opinion that if the holder does not produce a product-for-sale using the patent, within say 12-18 months, the patent is nullified. And the patent life then is shortened by the life of the product, so no quick "push out a failed product and claim yeah we have one"...

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

Actually, that argument can be made about all kinds of patented inventions "just math" or "just science" or "just engineering".

Not to take sides in this case, but if we are going to argue what should or should not qualify as a novel or unexpected intellectual invention deserving a patent (or if anything should) perhaps we can have a real discussion of substance.

So, in your opinion, what should be the rules to define the boundary of IP qualifying for a Patent, and should we exclude any science based inventions since these are just natural facts?

Or should we just have no patents and no copyright?

Serious questions.

There are several factors that make copyright work well while patens does not:

1) Copyright only covers an actual implementation, not an idea. You can write a book on teenage love and hold the copyright, but you cannot own a patent vaguely describing all books about teenage love. In any creative endaveour describing the "idea" of a work is 1% of the effort of actually creating it. Patents rewards the former while copyrights rewards and requires the latter.

2) Copyright provides excellent notification. If you copy a work, you generally know about it. When writing software, its impossible to know what patents you may or may not be infringing upon, because there are so many, and they are so vague and broadly worded.

3) Copyright is automatic. It does not depend on the certification by a bureaucracy of people with vested interests.

4) If you make an original work, you own the copyright, and you can expect it not to be covered by existing copyrights. On the other hand, if you make an independent invention or a piece of software, patenting it is expensive, and you cannot in any way expect that your work has not always been patented numerous times. And often there is no way to get a useful answer.

As for the patent system, there are numerous ways to reform and improve it:

A) Ambiguous patents are invalid. If you cannot be expected to know whether you infringe on a patent or not, no claim can be made against you. Clear notification is the responsibility of the patent writer.

B) Patents that cover already validly patented stuff are invalid. No one is required to license the same technology through different reworded patents multiple times.

C) If you can convincingly argue that you rediscovered an already patented invention independently, that patent is rendered invalid. If people keep coming up with the same solutions when facing the same set of problems, then that is the definition of obvious.

D) If you license a patent, and that patent is later found to have been invalid when you licensed it, you should have a legal claim to get you license fee back.

F) In patent-court the loser should pay the winners legal fees (within reason).

G) Software patents should expire after five years. Other patents after ten. If ten years of monopoly entitlement is not enough of an incentive, then perhaps the invention is just not that valuable.

Point C is excellent. If I could vote for one change and one change only, this would be the one. It would add an element of self correction to the system.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

In the end you can model anything with math and algorithms, so so any patent is just based on math and algorithms.

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

And how many patent creators are fully versed in patent law and have the resources to defend their patents in court?

What you are prescribing is a system that screws over the creator. Big Company A wants to steal your patent? Good luck not being made bankrupt by the appeals process. Want to sell your patents to make money based on your investments? Good luck finding a buyer for a patent they can only get money from for a year.

Whether one thinks this is ridiculous or not, there is sadly a strong precedent for this. In 2004 Google settled with Yahoo over similar patents that Overture had filed for in 2001. (Overture was bought by Yahoo in 03) Also keep in mind, Overture didn't win all the patents it filed for, because Ken Lang had them already. (Ken Lang's patents were taken over by Lycos, who sold them back to him in 2011. Lang then starts I/P Engine, merges with Vringo, and well, here we are.)

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

Strongly disagree.How do you expect an independent inventor to take on Google or Newegg?

All you have to do is look at the language that created IP protection in the Constitution Article 1, Section 8, Clause 8. The protection is for a limited time to promote science and useful arts. If you just sit on your invention and do nothing with it that does not promote science, makes it useful or benefits society. Waiting around for someone to sue makes you a burden on society. If you make nothing with the patent but litigate that makes you a patent troll plain and simple no matter how much you argue against it.

As for the ruling, if Vringo acknowledges that Google did not know of this technology how was it willful infringement? These words the judge is using don't mean what he thinks they mean.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

Well the USPTO allows people to trademark words like "Candy", so we should not at all be surprised at any other fuckupery that slips through their doors.

All you have to do is look at the language that created IP protection in the Constitution Article 1, Section 8, Clause 8. The protection is for a limited time to promote science and useful arts. If you just sit on your invention and do nothing with it that does not promote science, makes it useful or benefits society. Waiting around for someone to sue makes you a burden on society. If you make nothing with the patent but litigate that makes you a patent troll plain and simple no matter how much you argue against it.

It still promotes science whether you produce a product or not. Do you honestly expect researchers to come out with a solid product like the iPod? Yet companies like Apple have made billions in the process while paying back millions to the scientist that created it. Don't see how that's not promoting science. In fact what you seem to be suggesting is don't bother doing the science unless you have the capital to produce and market a product.

I will say it again and again.The patent system was made for the CREATOR to protect his or her patents.

Say it as often as you like: but the patent (and copyright) system were actually created to serve the public good. The *point* was to make art / invention profitable enough to encourage the creation of more art / invention.

This is why "obvious" things are not supposed to be patentable; because they need no incentive to be created (as the burden to create is so low).

Quote:

We should not be able to sell or trade them. If a Patent selling must be done. The person who buys it - should only get exclusive license to the patent for 1 year. Then it becomes general public domain.

That's not really functional.

1) If I , working for a company, and using the company resources, invent something: the company cannot use the patent? Only me personally? There goes R&D.

2) It may take far longer than 1 year to bring something to market. Invent a new drug? How long till FDA approval and effacacy testing is done?

4) What if the inventor dies? See question 1 for why that's a problem.

But no: math should not be patentable. Anything likely to be invented by a lot of people in short order (in other words: obvious things) should not be patentable. Indeed: I oppose software patents in general (as do many programmers)

What's even rare is a product that uses a single patent. So essentially nothing of value could ever be made based on some of the uninformed opinions here requiring the patent owner to make the product. Certainly not electronics or computers.

The definition of a patent troll: A) "Any company I don't feel should have the right to sue this other company because I don't think their patent is even valid or valuable".B) A narrative against patent holders invented by some tech sites to product page clicks.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

In the end you can model anything with math and algorithms, so so any patent is just based on math and algorithms.

Describe for me, using only math and algorithms, how to make a mousetrap.

So... if Microsoft have agreed to pay 5% of what Google end up paying... does that mean that they're liable for 5% of the running royalty, indefinitely? That means that the better their competitor does in the advertising market, they more they'll also have to pay? Seems a bit unfair...

Since it's not explicitly stated we don't know if it includes future royalties, but if it does include them then MS thought it was fair enough since they agreed to the settlement. That 5% could have been based on MS's share (with a projection until the patents end) of the advertising market compared to Google so in a sense it would be fair.

For instance, semiconductor design - if a grad student works out a way to reduce transistor leakage on sub 10nm scales by 80% it would be a huge advance for the industry - however the cost of building a fab is on the order of $5B, so while they may be able to use university equipment to produce a few prototypes to prove it works, there is no reasonable way to bring it to production. This would leave this innovative person no recourse when Intel, GloFo, and TSMC start using his ideas to boost their profits. Is this really the world people want?

If you don't have $5B to build it, and it requires $5B to be built, tough luck. Just because you invented it, it doesn't make you automatically worthy of being awarded anything like full percentage points of $5B for your invention.

This patent covers a single invention a couple of guys made in 1996. This verdict places the value of that one idea in the context of a single corporate customer at $1B. Which is beyond absurd.

Those guys weren't required to go to market with that invention, or even find a market where it applies. They didn't build the support structure that enables such value (or any value at all) to be derived from the invention. They didn't hire 40k employees to get the invention to scale. They weren't even required to implement a working prototype of the invention. Where they did any of such things, they failed miserably in the marketplace.

Were they did succeed was in waiting on their asses before cashing in on a successful competitor at the right time, giving most of the many millions to lawyers, propping up the litigation industry in the Eastern District of Texas, sending fat checks to politicians, and generating "shareholder value" for the opportunists like the one posting around here.

So you invented some shit that's somehow useful to a billion dollar industry. So what? The industry is worth a billion dollars because many thousands of other people collectively invented everything else that built the industry, had the business acumen to take it in the right directions, built all the infrastructure necessary to sustain it, etc.

Forget about all the software inventions since 1996 that allow Google to make $15B/year with AdWords. Things like all the OS code, all the database code, all the web server code, all other business logic code around AdWords and all code for applications where ads are show (because no one will value ads that sit alone with no content). What about all the hardware inventions since then - CPU speed, memory bandwidth, SSDs, PPUs? How would AdWords even work, let alone make $15/year, without those? And what about that guy who invented something in HVAC that saves Google $1B/year in cooling costs, would the business even exist without him? Between all of this, all the hundreds of thousands of people working in all of these things, this single idea is worth 1.3585% of Google's AdWord business!?

Let's do it all in the name of the romantic idea of a little guy who had an awesome idea in a basement, and wants to take on the mega conglomerate. Never mind the 40k smart people working at the company -that guy said "first!"

The purpose of patents was two-fold. They were first supposed to give inventors an incentive to invent, and second guarantee the availablity of the technology to everyone after a certain time period.

When most software patents are used by people who don't invent or market any technology, you know that those patents are broken.

Not only that, but the vagueness of software patents would not guarantee the availability of the technology to anyone were it not for the fact that they are pretty much all so obvious that any programmer could reproduce the product even with the vague descriptions provided.

It's really rather amusing the way that corporations have managed to turn the original purpose of patents and copyrights on its head in so many cases and how the pretense that this is the way these principles were supposed to work is maintained so gallantly by the people involved.

This is a great demonstration of what bothers me most about the way the patent system has been operating.

1) The vast majority of the infringement cases are over independent invention rather than copying. There's rarely ever even an accusation of copying.

2) In many cases, the patent holder sues many different companies for infringement.

To me, it seems that if many companies are independently inventing the thing that you patented, then that's a strong sign that it's obvious and shouldn't have been patentable in the first place.

Some might try to argue that the invention wasn't obvious at the time the patent was filed, but became obvious later, but I don't really see this as a valid argument. If it became obvious only because the patent was filed, then it would be copying, but that doesn't appear to be the case most of the time. If it became obvious due to the natural progression of technology, and the patent holder was just the first to take note and file a patent, that doesn't seem like sufficient justification for granting a monopoly on it.

Granting someone a monopoly on something that is in the process of becoming obvious through the natural progression of technology impedes innovation rather than promoting it.

He's also behind the Uniloc patents... and he donates to the EFF "troll fighting" campaign. What a conflicted individual. That's why I find this all a joke, this only helps the big guy destroy the little guy and not pay a cent. Either way Mark Cuban wins.

Bah, I have slight nostalgia for Lycos as this was the day before Adwords and my father taught me how to advertise on hundreds of words for only $5 a day (500 to be exact, obscure search terms that only have zero bids are placed at $.01) sure Google's Adwords system was similar, but if that's all it takes for a patent; then anyone using CSS with a background-color statement or PHP with a echo statement should also be liable for an asinine lawsuit as well.

Let's take this out of the digital realm and use a 'hardware' analogy.

I have an idea on how to build a literal better mousetrap that uses electric shock to stun the mouse for later release into the wild.

Is this idea itself patentable?

If not, why should digital equivalents be patentable?

Let's take it further and I actually build and market the device, and D-Con comes out with a similar one that doesn't use the circuitry I designed and doesn't look like (thus avoiding trade dress issues) my trap, but performs the same function.

"The criticism doesn't relate to cases like this," he said. "There are situations where plaintiffs are filing cases that have no merit and extorting money out of defendants, because it's cheaper to settle. Obviously, in this case, we had a very good federal judge and jury come to the opposite conclusion."

I still don't understand how you can patent math and algorithms. In the end this is all math.

In the end you can model anything with math and algorithms, so so any patent is just based on math and algorithms.

The fact that you can model anything w/math and algorithms is irrelevant because it isn't the model that is patented; it is the implementation. The implementation of an algorithm in software is the code, which is already separately protected by copyright and why the idea of a software patent is ludicrous on its face.

The disappointing thing about this is that unless an appeal is successful, this will become precedence.

It doesn't matter how much people point out the flaws in the patent system, it has become big business and unless some landmark decisions are made to stop it, it's only going to gather steam.

I think the problem with patents is that they were created for a different time.

Consider a steam engine, a patent for that could be (at the time). Using fuel to drive a piston connected to some wheels. It describes the mechanism, you wouldn't really bat an eyelid.Except as times change, and technology changes, these style of patents become defunct. Technology moves on and complex things from the past become simpler and more obvious.

What is happening with half of these patent trials is people using the steam engine patent and trying to apply it to an internal combustion engine, because the combustion engine uses the same theories and principles.

And in a time when both these systems exist, the patent that would have been perfectly acceptable back when the steam engine was created suddenly seems overreaching and broad. Because the tech that it now also covers due to vagueness was not invented.

This is why conceptual patents should not stand, because they are just not specific enough, and a patent should NOT be futureproof.